According to statistics from the Internal Revenue Service, approximately 104 million Americans received a tax refund in 2024, with the average refund being $3,138. This left about 58 million Americans who either broke even or owed money.
Breaking even — not receiving a refund — is good; it means you gave Uncle Sam the right amount. Owing taxes, of course, is another story.
If you’re under financial stress this year and facing a large tax bill, you may wonder: What if I can’t pay my taxes? Or what if I can’t afford to pay all of my taxes?
This dilemma and the related stress is, well, taxing. But generally, you have three options:
— Get on a monthly installment agreement.
— Request an offer in compromise.
— File and don’t pay, or make a partial payment.
Everyone’s tax situation is different, and there is no one-size-fits-all strategy, so you should consult a tax professional for advice. But here is an outline of the strategies experts recommend.
[Read: When You Should (and Shouldn’t) Worry if Your Tax Refund Is Delayed.]
1. Get on a Monthly Installment Plan
If you’re behind on your taxes but know you can catch up eventually, this is probably your most appealing option. After you file your tax return, fill out an online payment agreement application on the IRS website.
You can also mail in your taxes and include Form 9465, which is used for taxpayers who are interested in a monthly installment plan. The IRS will give you 72 months to pay your bill, provided you owe $50,000 or less in combined tax, penalties and interest.
Hopefully you haven’t neglected to file your taxes in previous years. You can’t get on an installment payment agreement with the IRS until you’re caught up on filing past returns.
“Definitely contact the IRS and get on a payment plan,” says Dennis Brager, a certified tax specialist in California and tax litigation attorney at Brager Tax Law Group in Los Angeles and a former senior trial attorney for the IRS Office of Chief Counsel.
Barger says that if you can’t pay the IRS anything, you should ask them to declare your account “temporarily not collectible.”
That said, the label is more or less a placeholder so that the IRS will know your status. Beyond that, it won’t help you much. Brager says the IRS will still charge you interest and probably late payment penalties.
Why you might consider this: Maybe you can finally de-stress. You’ll pay the IRS monthly, and maybe your anxiety will diminish.
What may be problematic: Interest will still accumulate with the installment plan in place. If your debt continues to pile up, the IRS can file a federal tax lien against you and your property, which can make it challenging to get a decent loan.
The tricky part about paying an installment loan with the IRS, especially if you’re self-employed and need to make quarterly tax payments, is that while you’re paying your back taxes in a monthly installment plan, you still need to make payments for the current year so you don’t keep falling behind.
In fact, if you make your monthly payment too high and fail to budget enough so you can pay taxes on the current year, you might start a vicious cycle of owing the IRS indefinitely.
2. Request an Offer in Compromise
This is the second approach the IRS recommends if a taxpayer cannot pay taxes in full. In a nutshell, you make an offer to the IRS on what you feel you can pay, and if accepted, that’s what you pay.
According to the IRS: “An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or if doing so creates a financial hardship. We consider your unique set of facts and circumstances:
— Ability to pay
— Income
— Expenses
— Asset equity
We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. Before submitting an offer in compromise, explore all other payment options.”
Also worth noting: You must pay a $205 fee when you send your application, though you may be able to get it waived if you meet the agency’s low-income certification guidelines. If you owe money, though, and you truly believe you don’t owe what the IRS says, you can probably avoid the fee if you submit Form 656-L, Offer in Compromise (Doubt as to Liability).
Why you might consider this: You don’t want to have this problem hanging over your head forever, and it can be a permanent solution to fixing your financial situation.
Brager likes the idea for some taxpayers. “An offer in compromise is a great option if you owe a lot of money to the IRS, you have limited assets and limited ability to pay,” he says.
“Paradoxically, the more you owe, the more likely you will be able to save money with an offer in compromise. Keep in mind that if the IRS thinks you can pay within the statute of limitations — generally 10 years — they will not accept an offer in compromise,” he adds.
What may be problematic: Generally, you’ll pay 20% of your offer up front and the rest through installments. If the IRS accepts the compromise but you don’t live up to the agreement, it can sue you for the remaining tax debt you owe, plus penalties and interest.
3. File and Don’t Pay or Make a Partial Payment
Whatever happens, do not become discouraged and fail to file. Whether you expect to make a monthly installment plan or an offer in compromise — or you just need time to think about your options — it’s important to still file your return.
“If you can’t pay your taxes in full, for goodness’ sake at least send partial payments every month,” says Bruce Givner, a tax attorney in Los Angeles with KFB Rice. He offers the example that if you owe $25,000, mailing in your return on time with a check for $500 is better than nothing.
Why you might consider this: Filing to file your return when you owe money can result in more penalties and interest than simply not paying. (You can, of course, file an extension. That doesn’t save you any money, but it gives you more time to prepare your taxes.)
“If you fail to send your return in on time, that is an entirely different penalty from failing to pay,” Givner says. “And the failure to file (penalty) is worse than the failure to pay. It is 5% per month until it hits the 25% maximum. By contrast, the failure to pay is only 0.5% per month.”
If you don’t have the money to pay your tax bill, sending in some money every month can reduce penalties down the road, and it will make you look more favorable to the IRS, according to Givner.
He adds that if you later try to work out something with a revenue officer at the IRS and that officer sees that you’ve made a payment or even multiple payments, “he or she will be in a lot better mood and more interested in working out a formal payment arrangement with you.”
What may be problematic: Not working anything out will hurt you in the long run. Your tax debt will keep growing, and if you eventually have federal tax liens, it will hurt your credit. You’ll see a relatively small problem snowball into a big one.
[Read: 22 Legal Secrets to Help Reduce Your Taxes]
If I Can’t Pay My Taxes, Should I Hire a Tax Professional?
If you’re already struggling financially and aren’t considered wealthy, hiring a tax professional may not make sense. You’re going to eventually pay the IRS a lot of money in back taxes. Does it really make sense to pay a tax attorney when you can talk to the IRS on the phone and send in the forms yourself?
On the other hand, for some people, getting professional help may not be such a bad idea.
“The more complex your situation, the more likely that the cost of professional help will be worth it. As a rule of thumb, if you owe less than $50,000, don’t own a business and all you want is a payment plan, then you probably don’t need professional help,” Brager says.
However, Brager says, “If you decide to pay for professional help, be sure to vet them carefully. Unfortunately, there are a lot of companies out there who will promise the moon, take your money and leave you worse off than you started.”
To review, if you have a tax bill that you can’t pay but you want to come to a solution, do the following:
1. File your taxes, whether you can pay them or not.
2. Send the IRS some money if possible. It doesn’t have to be the full amount.
3. Wait to receive a letter from the IRS about your tax bill, or better yet, contact the IRS and ask about a monthly installment plan.
4. If you’re feeling really overwhelmed, talk to a tax professional about your situation and consider possibly sending in an offer in compromise.
If I Can’t Pay My Taxes, Could I Go to Jail?
That’s very unlikely. If you’re not filing taxes for years, you start to get into what’s known as tax evasion. You could go to jail for that.
But if you’re unable to pay your taxes, work with the IRS and try to pay something or hire a tax professional.
If I’ve Faced a Hardship, Do I Have to Pay Taxes?
Some people can get more time to file their taxes. For example, if you’ve lived through a natural disaster like a hurricane or wildfire, you may have longer to file and pay your taxes. Check the IRS’ disaster relief page for more information.
You can always file an extension whether or not you were affected by a natural disaster. That won’t save you any money, but it will give you perhaps some much-needed extra time to prepare your tax return.
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What to Do if You Can’t Pay Your Taxes originally appeared on usnews.com
Update 03/17/25: This story was published at an earlier date and has been updated with new information.
